Ascott Residence Trust - OCBC Investment 2019-01-30: 4Q18 Results Beat!


Ascott Residence Trust - 4Q18 Results Beat!

  • Standouts: US, Japan, China.
  • We favour Ascott Residence Trust’s defensive portfolio.
  • Fair Value up from S$1.18 to S$1.25.

4Q18 DPU up 5% y-o-y

  • ASCOTT RESIDENCE TRUST (SGX:A68U)’s 4Q18 results beat expectations. 4Q18 revenue grew 2% y-o-y to S$136.5m, helped by an additional S$0.4m in revenue from Ascott Orchard Singapore (acquired in Oct 2017), S$2.7m higher revenue from existing properties, and partially offset by a S$1.1m decrease in revenue from divestments. 4Q18 gross profit grew 3% y-o-y to S$63.4m. 4Q18 DPU increased 5% y-o-y to 2.15 S cents.
  • Ascott Residence Trust’s FY18 DPU was up 1% to 7.16 S cents or 106% of our initial full-year forecast, in part due to higher than forecasted capital distributions made during 4Q18. S$6.5m in partial distribution of divestment gains was made in both 4Q17 and 4Q18, and is higher than our assumption of S$1.6m.
  • In terms of distributable income without capital distribution, Ascott Residence Trust’s FY18 figure of S$148.3m came to 103% of our initial full-year forecast, which we consider above expectations.

Portfolio RevPAU up 5% y-o-y

  • Ascott Residence Trust’s 4Q18 portfolio RevPAU grew 5% y-o-y to S$163, with 8 out of 12 management contract geographies clocking positive RevPAU growth in SGD terms. The following geographies showed negative RevPAU growth y-o-y in 4Q18:
    • Australia due to currency movements,
    • Indonesia due to ongoing renovations,
    • Malaysia due to weaker leisure demand, and
    • Vietnam due to weaker underlying performance as well as currency movements.
  • Looking at gross profit, Ascott Residence Trust’s properties in the United States, Japan, and China were standouts, clocking a 16%, 13%, and 9% y-o-y increase in gross profit in SGD terms, respectively.
    • The US saw higher revenue from the refurbished apartments at Sheraton Tribeca New York Hotel as well as stronger market demand.
    • Japan saw stronger corporate and leisure demand in Tokyo.
    • China clocked higher gross profit on the back of lower depreciation expense and lower marketing expenses, more than offsetting a 10% decline in revenue due to divestments.

Defensive portfolio of high quality assets

  • Following a drop in cost of equity drops from 7.5% to 7.3%, our fair value increases from S$1.18 to S$1.25.
  • Ascott Residence Trust boasts a highly geographically diversified portfolio of high quality assets and given the ongoing macroeconomic uncertainties we look upon this defensive positioning favourably.
  • Gearing currently stands at 36.7% as at 31 December 2018, with ~80% of Ascott Residence Trust’s total borrowings on fixed interest rates. Post the divestment of Ascott Raffles Place, gearing is expected to drop to 32+%. This translates into a debt headroom of close to S$1b, and offers Ascott Residence Trust greater flexibility to pursue DPU accretive acquisitions.
  • Ascott Residence Trust is currently trading at a 5.9% FY19F dividend yield.
  • Since our upgrade from Hold to BUY on 10 Jan 2019 (see report: Ascott Residence Trust - New Year, New Look), Ascott Residence Trust has posted total returns of 6.4%, beating the Straits Times Index (STI) as well as the FTSE Straits Times REIT Index (FSTREI) by 5.0 ppt and 2.7 ppt respectively.
  • We maintain BUY with a fair value of S$1.25.

Deborah Ong OCBC Investment Research | 2019-01-30
SGX Stock Analyst Report BUY MAINTAIN BUY 1.25 UP 1.180